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Blockbuster's Joy-Buzzer Handshake

Netflix and Blockbuster make nice, but it can't be nice.

The patent dispute between Blockbuster (NYSE:BBI) and Netflix (NASDAQ:NFLX) is over. The two giants in home-delivered DVD rentals settled their differences outside of court on Monday, putting an end to the 14-month-old case.

Netflix was arguing that Blockbuster's entry into the online-based home delivery niche trampled on a pair of Netflix patents. According to Netflix, Blockbuster copied its queue management system and the subscription model for unlimited rentals.

Here is where things get interesting. The companies are not divulging the terms of the settlement, yet Blockbuster indicates that it won't have a material impact on its future financial performance.

Really? Netflix would have little reason to cave in here. Blockbuster's interface is nearly identical to the original. With Blockbuster's market-share-nibbling success forcing Netflix to lower its year-end subscriber targets, it just doesn't make sense for Blockbuster to escape without a scrape.

The market is as skeptical as I am. News of the confidential settlement sent Netflix shares climbing 6% higher, with Blockbuster's stock closing slightly lower.

It's no secret that Blockbuster is losing a ton of money with its Total Access plan. Earlier this month, it announced a new pricing tier that is $1 a month cheaper but nixes the free in-store DVD exchanges. The company expects to amend its offerings at least once more later this year. Could that be part of the settlement? Is this the beginning of Blockbuster's commitment to making its stores transactional havens again instead of hubs of free DVD swapping?

You can let the conspiracy theorists go dizzy with the possibilities. All I know is that Netflix is no dummy. There are too many threats on the horizon for it to settle out of court in a decision that doesn't make it stronger.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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